Canada’s real trade challenge: Capturing more value, not just volume

Canada is a trading nation. But when we talk about trade success, we often focus on export volumes, market access and diversification. Those matter. But they miss a more important question: How much wealth does our trade with the rest of the world generate for the Canadian economy?

Canada’s natural resources have been a foundation of economic development since Confederation. As exporters of fur, fish and fuel, successive waves of resource extraction helped shape our commercial success and our role in the global economy. These advantages also led to manufacturing industries that play a critical upstream role in tightly integrated North American supply chains, supplying essential inputs that underpin continental production, especially in the world’s largest economy.

How Canada can capture more value from exports

But while a “dig and ship” economy generates one level of return, it doesn’t necessarily capture its full wealth potential. It can also leave Canada exposed to economic coercion and other vulnerabilities, as many resources can be sourced elsewhere. Take raw canola seed. While it’s a staple in a growing and increasingly hungry world, prices can swing with supply and demand. Major buyers can hold disproportionate power and substitute suppliers for a range of strategic or commercial reasons.

Crushing canola into oil and meal—and building additional value-added uses around those outputs—creates another level of return. It also increases strategic leverage, as the capital and expertise required aren’t as widely available as the seed itself. Across the global economy, the countries that perform best in trade aren’t always the ones that ship the most. They’re the ones that occupy the highest-value, most specialized parts of the production process.

The Economic Complexity Index offers one way to understand this dynamic. Economies that produce diversified, distinctive and hard-to-replicate goods tend to be richer, more productive and more resilient. That helps explain why countries such as Japan, South Korea, Germany and the United States (U.S.) capture more of the upside from global trade.

Why Canada is falling behind in high-value trade

Canada, by contrast, appears to have moved in the opposite direction. Since the mid-1990s, our economic complexity has trended lower. That may sound abstract, but the implications are real. Estimates compiled by Export Development Canada’s (EDC) strategic research team suggest that moving into more advanced stages of the production process could lift gross domestic product (GDP) by up to $98 billion by 2035—or roughly $2,500 per person.

Why has Canada slipped? Part of the story is the loss of domestic innovators such as BlackBerry and Nortel. Part of it is increased competition from China, which climbed the value-added ladder rapidly in recent decades. And part of it reflects a familiar challenge: The pull of the commodity trap. Resource strength can make it harder to build momentum in downstream processing, adjacent technologies and knowledge-intensive services.

Canada’s close integration with the U.S. also shaped the outcome. Access to the world’s largest economy has been a major advantage. But it may have reduced the incentive to upgrade. Canada has been highly successful at extracting, manufacturing and exporting what it already does well. At the same time, too much of the value tied to processing, design, services, branding and intellectual property is captured elsewhere.

What Canada must do to move up the global value chain

In many industries, the least value is created either in resource extraction or in mid-stage tasks along the supply chain—like basic assembly or standardized services. The largest gains sit at both ends: Early-stage activities, like R&D, design, conceptualization and late-stage functions such as branding, marketing, specialized logistics and after-sales services. If Canada wants to capture more value, we need to move closer to those edges—where income, productivity and competitiveness are built.

What does that mean in practice? It starts with recognizing that economic complexity should be a strategic objective, not a byproduct. We should be more deliberate about using trade to help Canadian firms move into higher-value functions, including engineering, software, logistics, financing and after-sales support.

That shift depends on access to patient, risk-tolerant capital. Without it, firms trying to scale into more advanced products or more complex markets risk remaining stuck in lower-value activities.

The same is true for innovation. Canada is strong at generating talent and research, but less consistent at translating those strengths into scaled firms, retained intellectual property (IP) and commercial success at home. The challenge isn’t just invention—it’s value retention. That also requires deeper science, technology, engineering and math (STEM) capacity, better technical training, robust skilled trades and closer alignment between workforce development and business needs.

Infrastructure matters, too. Systems designed for bulk commodities won’t be enough if Canada wants to compete in more time-sensitive, higher-value trade. Faster, more digital and better co-ordinated trade corridors are now part of the competitiveness equation.

Even market diversification should be seen through this lens. Selling the same low-value exports to more countries may reduce concentration risk, but it won’t change Canada’s growth trajectory. Diversification delivers the greatest benefit when it helps firms move into more knowledge-intensive, higher-value segments of trade.

None of this suggests Canada should walk away from our traditional strengths. Our resource base, industrial capabilities and proximity to the U.S. remain major advantages. But stronger long-term growth will depend on extracting more value from those strengths—by moving downstream where it makes sense, embedding more services and technology into what we produce and retaining more of the commercialization and IP upside at home.

In a more fragmented global economy, the countries that succeed won’t necessarily be the ones that trade the most. They’ll be the ones that capture the most value from trade. And Canada should aim to be one of them.

The bottom line: Why Canada’s position in global value chains matters

With geopolitical alignments shifting and trade increasingly used as a strategic tool, the current focus on market diversification makes sense. But diversification isn’t the ultimate objective. Measuring success by simply tallying what share of our exports is destined to which markets risks missing the bigger picture.

The current spotlight on diversification is part of a much larger industrial strategy, aimed at maximizing Canada's global value chain position. The real challenge for Canada isn’t who we trade with—it’s how we’re positioned along global value chains within strategic sectors. A more deliberate approach to value chain integration can strengthen Canada’s strategic leverage, enhance our resilience and ultimately maximize long-term prosperity.

This week, a very special thanks to Prerna Sharma, senior economist, Malcolm Fisher, associate analyst, and to the entire Data-driven Research, Economic Analysis and Modelling team at EDC.

As always, at EDC Economics, we value your feedback. If you have ideas for topics that you’d like us to explore, please email us at economics@edc.ca and we’ll do our best to cover them.